Published on October 12th, 2016 | by Guest0
Top Reasons Why Businesses Should Consider Procurement Outsourcing
Every firm faces numerous challenges along its normal course of business. Right from finance, obtaining raw materials, to recruiting the right people, the challenges are endless. It is imperative that companies focus on their core area of business instead of diverting their attention to other aspects.
For this purpose, many firms are now outsourcing their procurement activities to third-party firms so that they may concentrate on the main goal at hand.
Shopify Business Encyclopedia defines outsourcing as “when a business pays an outside supplier to provide goods and services, rather than doing the work in-house”.
About procurement outsourcing
It is important for businesses to adapt to changing market demands by focusing on their core competencies. For this purpose,many businesses outsource their procurement activities to reduce time and effort. This process is known as procurement outsourcing (PO). Procurement activities like the acquisition of goods and services are outsourced to third-party vendors and supplier management parties.It is necessary that these goods and services are procured at the lowest cost and meet the company’s needs in terms of timely delivery, quantity, quality, and location.
PO is now becoming a widely preferred option for many businesses due to the variety of benefits it has to offer. Following are five reasons why businesses should consider outsourcing their procurement activities.
- To get a fresh set of ideas
Third-party outsourcing companies are experts in this field and have wide knowledge about related aspects. Therefore, they will provide a new perspective on the existing situation. Besides, the service provider may also suggest a fresh set of ideas, which may not have been generated internally. This new set of ideas may then be reviewed and shortlisted. Finally, the best idea may be selected based on its feasibility with regards to implementation.Procurement outsourcing service providers also offer other services like opportunity assessments and spend analysis.
- To reduce costs associated with such activities
It is a very expensive affair to hire professionals and provide them with the necessary training within an organization. Due to a huge gap between the demand and supply of talented manpower in the procurement field, the salary of such professionals is quite high. Instead, a more preferred option would be outsourcing the activities when required. When the need arises, the projects should be allocated to a third party at a pre-determined amount of money. In this manner, the overall cost associated with such procurement activities is cut down drastically.
- To get the necessary expertise and resources
Outsourcing companies have years of hands-on experience in the field. Hence, they tend to do the job at a quicker rate with a greater focus on the existing opportunities. Procurement outsourcing teams are adept at dealing with the latest customer demands, priority changes, and other associated factors.Additionally, these companies also provide supplemental expertise for business strategiessuch as supplier evaluation, new product line, and penetration of new markets, besides many others. Outsourcing companies also deal with procurement system installation, procurement training, business process review, and strategic procurement advice.
- Quick and time-efficient
Procurement outsourcing service providers create a larger impact in terms of quicker and more efficient delivery. Such providers focus solely on the area that they are engaged in. Hence, all attention, expertise, and resources are only diverted towards procurement delivery, and not any other area. Such factors enable the third-party to deliver results at a faster rate as compared to the in-house staff.
- Effective risk-solution
Risk is inevitable. Every business faces internal as well as external risks. It is, therefore, necessary that firms adapt to the dynamic business environment by maintaining an adequate number of employees and adding new ones only when absolutely needed. The expenses associated with hiring new talent and training are exorbitantly high. Outsourcing mitigates this risk by allowing firms to tap into talent while incurring relatively lower costs and gaining the best expertise.
Procurement activities indeed have a strategic importance within an organization. Instead of investing resources and manpower internally, outsourcing is a more effective option. It helps firms focus on their core areas and solve the issues of non-strategic areas at the same time.It also assists in reducing cost, increasing productivity as well as shareholder value at the same time. Procurement outsourcing (PO) helps companies achieve excellence and gain supply management leadership within their industry.